Are shares in Tesco still worth buying?

By Author Charlie Gibson Aug 09, 2007

1

Print this article

Update: for more on the outlook for Tesco shares, see: Is it time to buy Tesco shares?

Given its recent share-price performance, investors could be forgiven for thinking that the Tesco (TSCO) juggernaut has finally “run out of steam”, says Harry Wallop in The Daily Telegraph.

Growth appears to be slowing, investors are getting concerned that it could be bounced into a foolhardy acquisition as a result, and worries about the Competition Commission’s attitude to the ongoing dominance of the big supermarket groups has come to the fore again.

However, investors may be worrying unduly, says Tony Jackson, also in The Daily Telegraph. Even if growth in the (admittedly tough) UK food market ground to a halt tomorrow, Tesco’s overseas “empire” in Asia and Europe (which accounts for 20% of sales) has been seeing profits grow at around 32% over the last few years, generating earnings growth for the group of around 6% a year. This is likely to continue.

And were UK growth to halt, Tesco would probably divert all (or most) of its investment in new assets in the UK to shareholders instead. That alone would raise the yield on the shares from around 2.4% currently to around 7.5%. That makes the shares “a buy in anyone’s language”.

Finally, say analysts at Goldman Sachs, it is worth remembering that Tesco, with its lean cost structure and history of price-led sales and earnings growth, is the best placed of all the supermarkets to deal with whatever challenges the market produces. It’s been doing just that for years now.

Published in Tips & advice | More articles by Charlie Gibson

Share with:More

TwitterLinkedInViadeoFacebookYahoo! BuzzredditDiggDelicious

Related articles

FREE - MoneyWeek's daily investment emailJohn Stepek

Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.